Money Laundering in Germany

Money laundering is standardised in § 261 German Criminal Code (StGB). In addition, all prohibited acts related to this offence are precisely covered by the “Act on the Tracing of Profits from Serious Crimes”: The Money Laundering Act (GwG).

This law follows the requirements of the money laundering directives of the European Union. Therefore, it has been subject to several changes in recent years, including tightening compliance requirements.

Money laundering is first understood as the process of introducing or hiding illegally acquired money or other assets amid legitimate economic circuits or business income. For example, when proceeds from criminal activities (such as drug or fraud offences) are diverted into a legitimate business by maintaining or investing in a legitimate business. The offence of money laundering is initially associated with organised crime.

However, it is not uncommon for bona fide business people or private individuals actively participating in economic life to be confronted with such accusations. One of the main reasons for this is that rapid transfers of assets on the financial and economic market do not infrequently come into contact with a money laundering transaction without this being intended or foreseen.

Banks are generally expected to report suspicious transactions at an early stage and to take countermeasures. Often, this conflicts with protecting their customers’ trust and any confidentiality interests.

The correct behaviour in the case of transactions suspected of money laundering can thus become a tricky balancing act. If called upon in good time, the support and advice of an expert in criminal law will work in favour of the person concerned.

Proving a money laundering offence can be particularly difficult due to concealment tactics. In particular, tracing the origin of the money can present law enforcement authorities with sometimes insurmountable tasks. After all, thwarting or endangering the seizure of assets is already part of the offence of money laundering under § 261 German Criminal Code.

All in all, this norm sets the following requirements for the realisation of the offence of money laundering-

• The money or other object in question must derive from one of the punishable acts listed in § 261 (1) sentence 2 StGB.
• The offender must conceal it, disguise its origin or frustrate or jeopardise the identification of its origin, its tracing, confiscation or seizure.
• The perpetrator must be aware that the assets originate from criminal activities and offences.

Accordingly, to prove a money laundering offence, there are several aspects that law enforcement authorities must consider.

In addition to the intentional commission of the offence described above, it is also possible to punish a person for negligent acts related to money laundering. Such is the case if the money seized is proven to have originated from a criminal activity but is not connected with a criminal act. However, it is not possible to determine with complete clarity precisely which act was carried out by the accused. In this context, it should be noted that money laundering offences that are based on negligence rather than intent are generally subject to a lesser penalty.

Anyone who is guilty of money laundering under § 261 (1) German Criminal Code is liable to a custodial sentence of three months to five years.

Suppose the perpetrator acts commercially or as a gang member that has joined forces to continue committing money laundering. In that case, this constitutes a serious case of money laundering under § 261 (4) German Criminal Code, which results in an increased sentence of six months to ten years.

A lower sentence compared to simple money laundering is provided for if the offender recklessly fails to realise during the same money laundering acts that the money or object originates from a criminal offence, i.e. he acts with particular negligence. In that case, the threatened penalty ranges from a fine to two years imprisonment.

A person who voluntarily reports the offence to the competent authority may escape criminal liability under § 261 (9) German Criminal Code if the offence had not been fully or partially uncovered at the time. The same applies if the suspect causes the seizure of the object to which the crime relates.

Beyond the penalties of § 261 German Criminal Code, money laundering offences may entail further sanctions. For example, suppose the managing director of a company is found to have concealed money from a criminal offence using his position in the company. In that case, they may be disqualified from holding that position for a significant period in the future. A company involved in such a case may also lose important licences for certain industry activities. In addition, there is the threat of heavy fines.

For more information on white-collar crime and the duties of managing directors applicable under compliance measures, we recommend our additional information pages or personal contact with one of our German criminal lawyers.

Since money laundering offences also include transferring significant amounts of illegally obtained money, financial institutions and companies in the financial sector have special prevention obligations. They are generally expected to establish comprehensive protective measures and monitoring mechanisms and to have particularly efficient compliance management.

For example, banks must investigate suspicious transactions, prepare regular reports, and provide information to competent authorities.

Likewise, lawyers and notaries are obliged to ensure that they are not actively involved in money laundering offences in any way. Law firms, law offices, auditors, and tax advisors must be thoroughly familiar with the requirements formulated in the Money Laundering Act, if only out of personal interest. They are required to handle the cases entrusted to them per the law.

Furthermore, law firms must comply with the preventive, protective measures of the professional associations or chambers of lawyers and auditors.

A breach of such self-regulatory rules may otherwise have considerable consequences for the professional future.

In particular, the real estate market in Germany is used on a large scale for money laundering. In the past, it has repeatedly been linked to money laundering amounts worth several billion euros. In many cases, drawing conclusions about the Italian Mafia was possible.

The amended Money Laundering Act is intended to specifically combat money laundering offences in the real estate market with new means such as the transparency register. Whether the measures taken will be successful remains to be seen since many investors are not registering in the transparency register.

Besides the real estate market, other economic sectors are also vulnerable to money laundering offences. For example, the automotive industry, the art trade and gambling companies are increasingly used to hide or disguise sums of money from criminal offences.

Germany is considered an attractive location for money laundering transactions due to its economic strength. However, since money laundering is regarded as a long-term and sustainable impediment to economic growth, the German government now wants to take stricter measures, which can at least partly be attributed to the amendment of the Money Laundering Act.

The tougher crackdown in economic sectors that are particularly vulnerable to money laundering offences may, however, lead to many legitimate and honest business people and other private individuals unjustifiably coming under the scrutiny of law enforcement agencies.

Self-employed business owners or managing directors of a company should consider the following actions if they suspect a money laundering offence:

• Financial records should always be kept up to date and updated accordingly regularly.
• The company’s transactions must be fully noted.
• The company’s financial accounts should be kept transparent.
• In addition, due diligence requirements and compliance measures must be adhered to when dealing with clients, and their transactions must be complied with without exception.
• Overall, it must be kept in mind that especially larger transactions that are not to be expected under normal circumstances, are from unusual sources, and lack any financial justification, may give rise to suspicion.

If you have any suspicions when carrying out transactions or working with clients, it is highly advisable as a precautionary measure to consult a lawyer who is familiar with money laundering offences. This situation requires tact and prudence. After all, rash actions can result in the loss of a valued client, while measures not taken in time can damage a company’s reputation and alert law enforcement.

If you are unsure about the legal situation, it is advisable to seek legal advice before contacting the authorities.